NZD/USD grinds higher past 0.6100 despite downbeat NZIER forecasts, US inflation eyed

• NZD/USD defends the first weekly gains in four, mildly bid of late.
• NZIER revises down near-term outlook for New Zealand’s economy.
• Headlines surrounding China, politics also challenge the upside momentum.
• Hawkish hopes from RBNZ, Fed seems to underpin the bullish bias during a quiet session.

NZD/USD stays mildly bid after snapping a three-week downtrend, taking rounds to 0.6115-20 during Monday’s Asian session. In doing so, the Kiwi pair ignores downbeat results of the New Zealand Institute of Economic Research (NZIER) survey of economists, as well as the risk-negative headlines emanating from China amid a sluggish start to the week.

In its latest economic forecasts, NZIER stated, “Consensus Forecasts for Gross Domestic Product (GDP) have been revised lower through to 2025.” The publication also mentioned that the reduction reflects the headwinds from higher inflation and interest rates slowing down economic activity. “Annual GDP growth is expected to ease to below 3 percent for the years ending March 2024 and March 2025 before increasing to just above 2 percent in the subsequent year,” notes NZIER.

The update also mentioned that the annual CPI inflation is expected to be just above the Reserve Bank’s inflation target mid-point of 2 percent across the horizon. The NZIER also mentioned, “Annual CPI inflation hiked to 7.3 percent in the year to June 2022. It is expected to moderate to 4.8 percent in 2023 and ease to 2.1 percent in 2026.”

Elsewhere, the latest news from Reuters suggesting that US President Joe Biden is to hit China with broader curbs on US chip and tool exports seems to test the previous upbeat market sentiment and the NZD/USD buyers. On the same line could be the analysis suggesting a 20-year low oil demand from China due to covid curbs, shared by Reuters. It’s worth mentioning that the fears emanating from the Russia-Ukraine crisis are also a negative for the NZD/USD prices.

Furthermore, comments from US Treasury Secretary Janet Yellen and some of the prominent Fed policymakers should have also challenged the NZD/USD bulls of late. That said, US Treasury Secretary Janet Yellen mentioned that, during the CNN interview on Sunday, “Fed is going to need skill and luck to bring inflation down while maintaining labor market strength.” The policymaker also mentioned that US consumers could experience a spike in gas prices in winter when the European Union significantly cuts back on buying Russian oil.

On the other hand, Federal Reserve Governor Christopher Waller was the prominent one as he said on Friday that he supports another significant hike in two weeks. On the same line was Kansas City Fed President Esther George who said, as reported by Reuters, “Case for continuing to remove policy accommodation is clear cut.” Furthermore, Cleveland Federal Reserve Bank President Loretta Mester said, “One inflation report is insufficient to alter one's outlook.” The policymaker also stated that he sees policy rates rising slightly above 4% by early 2023.

The pair’s upside momentum could be linked to the hawkish hopes from the Reserve Bank of New Zealand (RBNZ), as well as receding hawkish bets on the Fed despite the bold comments from the Fed policymakers.

With this in mind, the NZD/USD traders should wait for the US Consumer Price Index (CPI) and Retail Sales for August, as well as the preliminary readings of the Michigan Consumer Sentiment Index for September, for fresh impulse. Also important will be the second quarter (Q2) New Zealand GDP, expected 0.8% YoY versus -0.2% prior.

Technical analysis

A successful break of a three-week-old descending resistance line, now support around 0.6090, keeps NZD/USD buyers hopeful to challenge the 21-DMA hurdle surrounding 0.6170.